Wednesday, March 17, 2010

Health insurance companies: only the demonic survive

Under the current system of incentives, only demonic health insurance companies can prosper…

Demons And Demonization - Paul Krugman Blog -

The usual suspects have been attacking Obama for “demonizing” insurance companies; but saying that people do terrible things isn’t demonization if they do, in fact, do terrible things.

And health insurers do, because they have huge financial incentives to act in an inhumane way — most obviously, by revoking coverage when people get sick, using whatever rationale they can devise.

Read this report by Murray Waas on Assurant Health (previously called Fortis), which used a computer algorithm to identify every client with HIV, then systematically revoked coverage on the flimsiest of grounds — and appears to have systematically hidden any paper trail showing how it made its decisions…

…  the evidence is that the overwhelming majority of rescissions, not just at Assurant but across the board, are, in fact, without justification…

… And to repeat what I and other have repeatedly explained, you need the whole package to make this work. You can’t end discrimination based on medical history unless you require that health as well as sick people have insurance, to broaden the risk pool. And you can’t mandate coverage unless you provide aid to those who otherwise couldn’t afford it.

Right now, we have a system that creates huge incentives for bad, one might say demonic, behavior: Assurant made $150 million by revoking coverage, almost always without cause

In this system of incentives and a competitive marketplace, a virtuous corporation will lose out to one that follows the incentives. The virtuous corporation must either abandon virtue or die. Soon, only the demonic survive.

The same incentives, of course, apply in education. If a provider is judged by educational outcomes, the most successful strategy is to use “recission” to get rid of low performing students. Only the demonic survive.

We need to change the system.

Incidentally, it’s typical that the very first (asinine) comment on Krugman’s post is by someone who didn’t read the second to last paragraph. Eliminating patient discrimination while allowing patient choice on coverage timing is a recipe for bankrupting insurance companies. At that point,the patients are demonic.

We need the entire package.

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